Tds on allowances

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 February 2012 The employee of particular company is required to pay outstation visit on official tour. As per policy, The Company pays him outstation allowance and transit allowance at flat rate without submission of bill or actual rates on submission of bills. This are to meet his daily laundry, expenses.
For allowance paid at flat rates without bill, the company pays it to the employee, after deducting higher TDS rates (30%).Just wanted to know whether this is practice, since u/s 10(14) any allowance paid to employee to meet his expenses of official duties on outstation travel, to the extent utlised, are not taxable.
Kindly guide.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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13 February 2012 What ever you are mentioned in nature or per diem allowance. also the allowance to meet the official requirement is not taxable. giving allowance to a person for meeting expenses during official travel is exempted subject to actual expenses

deducting 30% on flat is not good practice, instead of this it can be insisted to provide the actual bills and balance will be taxable accordingly as per sec.10(14)

Querist : Anonymous

Querist : Anonymous (Querist)

19 April 2012 Thank you sir.
These are flat allowances that can be claimed by an employee, whether and to what extent employee spends it or not.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 Here's a clear summary on TDS and taxability for **outstation/travel allowances** paid at flat rates without bills:

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### Key points:

1. **Section 10(14) exemption**:

* Allows exemption for **allowances specifically granted to meet expenses incurred on official duties**.
* Exemption is **only to the extent of actual expenses incurred** and **supported by bills or proofs**.

2. **Flat allowances without bills**:

* If an employee receives a **fixed (flat) outstation or transit allowance** without submitting actual bills, the **entire allowance is taxable** as salary income.
* Hence, **TDS should be deducted on the full amount** as per applicable slab/rate.

3. **Deducting 30% TDS on flat allowances**:

* Deducting tax at 30% flat is **not a good practice unless employee falls in highest tax bracket or no PAN provided**.
* Correct approach: Deduct TDS as per applicable slab rate of the employee based on estimated income.

4. **Best practice**:

* Company should **ask for actual expense bills** and reimburse only the amount supported by bills (which will be exempt from tax).
* Any excess paid without bills is taxable.

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### So, for your case:

* Paying outstation allowance at flat rates without bills = fully taxable.
* Deduct TDS on full amount but at employee’s applicable tax rate, **not flat 30%**, unless no PAN or highest slab applies.

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If employee submits bills, reimburse only actual expenses—then no TDS on that exempt portion.

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Would you like a sample letter or policy wording to communicate this to employees?

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